Scotch whisky is set to be next years growth story

Scotch whisky is set to be next year's growth story

Diageo and Pernod Ricard are backing Scotch whisky to be next year's biggest growth story, an analyst has said.

The note from Investec today (6 September) also said latest results from the two drinks giants show that premiumisation has returned to the forefront of drinks producers' strategies, while a recovery in the US is taking place. But all eyes will be on Scotch for 2013 with Diageo and Pernod laying down new inventory and expanding capacity, it said.

“Scotch whisky is on trend and driving growth across the spirits sector,” Investec said. “The major international distillers have responded to an exponential surge in demand for Scotch, particularly in developing markets.”

In June, Diageo announced it will spend GBP1bn (US$1.55bn) on Scotch production over the next five years and on Tuesday said it is looking at three sites in Scotland to build a distillery.

Also on Tuesday, Pernod said it is considering building a new distillery in Scotland while in May, it committed to a GBP40m annual investment in its Chivas Brothers Scotch division.

Scotch accounts for about one-third of Diageo's group sales and about 30% of Pernod's profit, Investec said. 

Scotch is also at the heart of resurgent premiumisation trends after a post-Lehman Brothers downturn, Investec said.

“The evidence from current trading is that premiumisation is enjoying something of a renaissance, both in the largest global market (US), and through the pockets of aspirational drinkers in developing markets”, Investec said. Recent price momentum for Pernod and Diageo has been driven by premium brands, which account for 73% of Pernod’s group sales, Investec said.

The analyst added that encouraging results in the US for the two companies show that the country is on track for recovery.

“The mood music on the US - the largest global profit pool for international spirits - is turning increasingly positive,” it said. “The sound-bites from both Diageo and Pernod reflect an increasing confidence in the recovery of premiumisation in the US.”